Social Security with Uninsurable Income Risk and Endogenous Borrowing Constraints
We study the effects of a social security reform in a large overlapping generations model where markets are incomplete and households face uninsurable idiosyncratic income shocks. We depart from the previous literature by assuming that, because of lack of commitment in the credit market, the borrowing constraint in the unique asset is endogenously determined by individuals' incentives to default on previous debts. In our model, after the reform the incentives to default are lower and consequently households face more relaxed borrowing limits, leading to an increase in debt and a reduction in the size of precautionary savings. However, the quantitative impact of this mechanism on stationary aggregate savings is small. Computing the transitional dynamics for the basic model following the social security reform we obtain important welfare gains for workers at the bottom of the income distribution (equivalent to 1.3% of consumption each period) associated to the relaxation of the endogenous borrowing constraints, which are missed in an environment with fixed borrowing limits. (Copyright: Elsevier)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 11 (2008)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
|Order Information:|| Web: http://www.EconomicDynamics.org/RED17.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007.
"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default,"
Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de Altisimos Estudios Rios Pe©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
- Andrea Butelmann P & Francisco Gallego, 2000.
"Household Saving in Chile: Microeconomic Evidence,"
Journal Economía Chilena (The Chilean Economy),
Central Bank of Chile, vol. 3(1), pages 5-24, April.
- Butelmann, A. & Gallego, F., 2000. "Household Saving in Chile: Microeconomic Evidence," Papers 63, Cambridge - Risk, Information & Quantity Signals.
- Andrea Butelmann & Francisco Gallego, 2000. "Household Saving in Chile: Microeconomic Evidence," Working Papers Central Bank of Chile 63, Central Bank of Chile.
- Dirk Krueger & Fabrizio Perri, 1999.
"Risk sharing: private insurance markets or redistributive taxes?,"
262, Federal Reserve Bank of Minneapolis.
- Dirk Krueger & Fabrizio Perri, 1999. "Risk Sharing: Private Insurance Markets or Redistributive Taxes?," Working Papers 99-04, New York University, Leonard N. Stern School of Business, Department of Economics.
- Bai, Yan & Zhang, Jing, 2012.
"Financial integration and international risk sharing,"
Journal of International Economics,
Elsevier, vol. 86(1), pages 17-32.
- Yan Bai & Jing Zhang, 2009. "Financial Integration and International Risk Sharing," Working Papers 594, Research Seminar in International Economics, University of Michigan.
- Yan Bai & Jing Zhang, 2006. "Financial Integration and International Risk Sharing," 2006 Meeting Papers 371, Society for Economic Dynamics.
- Timothy J. Kehoe & David K. Levine, 1992.
"Debt constrained asset markets,"
445, Federal Reserve Bank of Minneapolis.
- Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
- Fernández-Villaverde, Jesús & Krueger, Dirk, 2011.
"Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?,"
Cambridge University Press, vol. 15(05), pages 725-770, November.
- Jesus Fernandez-Villaverde & Dirk Krueger, 2004. "Consumption and Saving over the Life Cycle: How Important are Consumer Durables?," 2004 Meeting Papers 357b, Society for Economic Dynamics.
- Storesletten, Kjetil & Telmer, Chris I. & Yaron, Amir, 1999.
"The risk-sharing implications of alternative social security arrangements,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 50(1), pages 213-259, June.
- Kjetil Storesletten & Chris Telmer & Amir Yaron, 1998. "The risk sharing implications of alternative social security arrangements," GSIA Working Papers 252, Carnegie Mellon University, Tepper School of Business.
- Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
- Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
- Luisa Fuster, 1999.
"Is Altruism Important for Understanding the Long-Run Effects of Social Security?,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
- Luisa Fuster, 1997. "Is altruism important for understanding the long-run effects of social security?," Economics Working Papers 234, Department of Economics and Business, Universitat Pompeu Fabra.
- Hansen, G.D., 1991.
"The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked,"
36, California Los Angeles - Applied Econometrics.
- Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
When requesting a correction, please mention this item's handle: RePEc:red:issued:05-107. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.